I have often argued that India has rushed in to adopt several
technology-intensive online systems that are shutting out large sections of the
population who are not tech-savvy or do not have access to infrastructure
available in urban centres. Even for those who can use online systems, the
experience is often very frustrating.

Our cover story this time outlines the problems unleashed by e-filing of tax
returns. Similarly, the capital market has been transformed by automation but
the retail investor population has shrunk. Unfortunately, successive chairmen
of the Securities and Exchange Board of India (SEBI) have been too busy pushing
the automation agenda to bother about those who can’t keep up. The
five-year bull-run and the gush of foreign investment allowed them to do so.

This issue of MoneyLIFE has two letters exemplifying the travails of retail
investors wanting to access the capital market. The first is about the mindless
application of Know Your Customer (KYC) rules often frustrating the opening of
demat or trading accounts. Gopinath Prabhu, who runs a brokerage firm in a
small town near Mangalore, says his friend’s demat application was
rejected because he could not produce proof of residence as the house was in
his father’s name. Prabhu asks a common sense question: if the submission
of a PAN is now mandatory and the PAN card states the father’s name with
the same address as in the application, why shouldn’t the telephone bill
in his father’s name be an acceptable proof? After all, India has a joint
family system.

Ironically, the same telephone bill allowed the friend to open a bank account
in the same town and, as Prabhu suggested to him, the bank account allowed him
to obtain a demat account. In effect, he found his own solution to the
mindless, bureaucratic obstacle. But can’t the process be made less
frustrating? We have written to SEBI and will wait for an answer.

Similarly, investor participation in the primary and secondary market is
hampered for want of market infrastructure. Vijay Samant has written several
letters to SEBI pointing to the fact that several initial public offerings
didn’t have a single bidding centre or a banker to the issue in the
entire state of Goa. Investors determined to apply had to send their
applications to Mumbai, wait for refunds and fork out hefty bank charges for
outstation cheques.

Prabhu also writes about how it took 15 days to clear a cheque of Rs2,000 from
his client, from which the bank deducted Rs80 as collection charges. That both
these cases
pertain to prosperous states of India, with strong investment ethos, reflects
the poor reach of the domestic market infrastructure.

Then there are cases like the one mentioned by Nagappan V of the Madras Stock
Exchange (see Letters to the Editor), where a retired military officer is
frustrated by the callous treatment meted out to small investors by large
brokerage franchisees. In one of our earliest issues of MoneyLIFE, I had
written about another retired brigadier, who was about to be cheated by his
broker (but was saved by our intervention), when he tried to encash some
long-term holdings to raise money for his wife’s medical treatment. In
that case, a broker of the Mangalore Stock Exchange was masquerading as a
member of the Bombay Stock Exchange where he operated as a sub-broker. In this
case, even caveat emptor (buyer beware) would not have helped in the absence of
a centralised, exchange-wise broker list being available to investors. We took
up this issue with the regulator a couple of years ago but nothing has
changed.

Instead, brokers caught in wrongdoing can now get away by filing consent terms
and paying a paltry fine without admitting or denying guilt. The practice is
borrowed from the Securities Exchange Commission of the US, but unlike it,
SEBI’s website provides no details of the charges against the brokerage
firm, leaving an investor clueless about the gravity of their misdemeanours.
Indian investors can only hope that when foreign investment interest begins to
flag, our policy-makers will pay attention to domestic investors’ needs

Ms Dalal is the Consulting Editor of MoneyLIFE. Subscribers get free
help in resolving their problems with select providers of financial services.
She can be reached at suchetadalal @yahoo.com

Acouple of weeks ago, the Dainik Hindustan carried my article on the
termination of UTI Mutual Fund’s (UTIMF) Senior Citizens Unit Plan
(SCUP). I was shocked to receive over a dozen letters from readers across the
country saying that they did not know about the termination of the scheme which
had raised Rs254 crore from around 17,800 investors. In fact, its marketing
pitch was to bring “sunshine” in the autumn years of their lives with an
assured-returns scheme that also offered a comprehensive insurance cover in
collaboration with New India Assurance.

Meanwhile, UTIMF’s Asset Management Company (AMC) is planning a public
issue to raise Rs2,000 crore and get listed on the stock exchanges. Its pre-IPO
advertising campaign claims that it was UTI which taught ordinary Indians the
language of the stock market. It is another matter that most investors credit
Dhirubhai Ambani with introducing them to the share bazaar while the erstwhile
Unit Trust of India was seen more as a government-guaranteed fixed-income
scheme offering tax benefits and steady returns.

In any case, investors attracted by the IPO campaign need to understand that
UTIMF is a different entity – with no government guarantees and only half its
former size. Further, an AMC earns only a percentage of the corpus it raises
under different mutual fund schemes. Its income is unrelated to the performance
of its schemes. This means that even in a bull market, its income can decline
if it fails to attract investors. That is why AMCs, in general, attract a price
of just under 5% of their assets under management (AUM) or total corpus when
they are sold.

Let’s get back to SCUP, which was marketed under the slogan: “Makes
your old age worry free, once and for all” but was summarily terminated. Nita
Kulkarni of Jalgaon is among those who ask, ‘what do I do now’? So let me
answer some of the questions raised by readers and offer possible solutions.
First, SCUP was terminated at the close of business on 18th February at the
prevailing NAV of Rs23.22 per unit “after deduction of
premium amounts”. A public notice appeared in Business Standard and letters
were sent to individual unit-holders. Clearly, many investors have not received
the letter and are unaware that their money is simply lying in UTIMF’s
coffers without earning interest. They need to hurry and claim redemption by
submitting their unit certificates. UTIMF does not say how many investors have
not claimed redemption proceeds so far. However, its investor department is
working proactively to help investors to complete redemption formalities,
switch to other schemes or understand options.

Remember, UTIMF is categorical that unit-holders are not entitled to any
interest, costs or compensation after February. So, the first thing to do is
move swiftly to collect your money by submitting the duly signed original
membership certificate. If you plan to reinvest the money in another UTIMF
scheme, please fill the option form that is available.

Subodh Mittal, who is 65, wants to know if he will still benefit from SCUP.
Well, everybody above 58 will continue to get hospitalisation insurance cover
because of an agreement with an insurance company. Some unit-holders have
chosen a ‘Floater Medical Policy’, available for a brief period at a
specially negotiated rate.

S Prakash is one of those investors who have heard nothing about the
termination of SCUP. Others like him must write to UTIMF immediately and those
who have not received their money after submitting their certificate can write
to me with their certificate and folio number and I will forward it to the
UTIMF investor cell. Better still, they can write directly to UTIMF or contact
its toll-free helpline at 1800 22 1230, or SMS it at 5676756 or email it to
[email protected]
Dainik Hindustan reader Rajiv Gupta of Agra, for instance, asks whether
UTIMF’s action amounts to a breach of contract. Well, some investors in
Pune, led by investment
advisor Stephen D’souza, think so and plan to file a case. Those
interested can contact him at [email protected] and join the litigation.

Ms Dalal is the Consulting Editor of MoneyLIFE. Subscribers get free help
in resolving their problems with select providers of financial services. She
can be reached at suchetadalal @yahoo.com